State-owned enterprises of China

Source: Wikipedia, the free encyclopedia.

A state-owned enterprise is a legal entity that undertakes commercial activities on behalf of an owner government. Their legal status varies from being a part of government to stock companies with a state as a regular or dominant stockholder. There is no standard definition of a government-owned corporation (GOC) or state-owned enterprise (SOE), although the two terms are often used interchangeably. The defining characteristics are that they have a distinct legal shape and they are established to operate in commercial affairs.[citation needed]

The role of the Chinese Communist Party (CCP) in SOEs has varied at different periods but has increased during the Xi Jinping administration, with the CCP formally taking a commanding role in all SOEs as of 2020.[1][2] For example, Lai Xiaomin, the former president of state-owned China Huarong Asset Management announced in 2015 that during the operation of China Huarong Asset Management, the embedded CCP committee will play a central role, and party members will play an exemplary role.[3] As Jin et al. wrote in 2022,[4]

The overarching principle of SOE reform is to firmly implement the Party’s leadership and the modern enterprise system. This principle creates a political governance system in China’s SOEs—a Party-dominated governance system characterized by Party leadership, state ownership, Party cadre management, Party participation in corporate decision-making, and intra-Party supervision.

CCP branches within China's SOEs are the governing bodies which make important decisions and inculcate its ideology.[5]

Significance

When China's SOEs were first created, they served as instruments for carrying out national goals and providing social stability via the iron rice bowl.[6] Financial performance of SOEs was not a major concern until China's reform era.[7] With the exception of a small number of national monopolies, SOEs compete in the market as privately enterprises do.[8]

As of 2017, China has more SOEs than any other country, and the most SOEs among large national companies.[9] In 2018, half of the country's centrally-owned SOEs were among the world's 500 largest companies.[10] As of the end of 2019, China's SOEs represented 4.5% of the global economy[11][needs update] and the total assets of all China's SOEs, including those operating in the financial sector, reached US$78.08 trillion.[12][needs update]

State-owned enterprises accounted for over 60% of China's market capitalization in 2019[13] and generated 40% of China's GDP of US$15.97 trillion (101.36 trillion yuan) in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%.[14][15] Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.[16][needs update]

SOEs have a primary role in China's energy sector.[17] Its five large state-owned power generation companies are: Datang, Guodian, Huadian, Huaneng, and China Power Investment Corporation.[18] Its state-owned grid companies are State Grid Corporation of China (SGCC) and China Southern Power Grid Corporation.[19]

Most Chinese universities are SOEs.[20]

China's SOEs are at the forefront of global seaport construction, and most new ports built by them are part of the Belt and Road Initiative.[21] State-owned banks are important sources of funding for port construction.[22]

SOEs that compete in the market are largely owned by provincial or sub-provincial governments.[23] A significant cluster of these SOEs are joint ventures with foreign companies in the automotive industry.[23]

In addition to their own operations, SOEs invest in private enterprises.[24] From the perspective of these private enterprises, this form of partial state ownership is helpful in obtaining financing from banks, particularly as prompts banks to require less collateral.[25] Sometimes in investing in private enterprises, SOEs acquire enough shares to nationalize them.[26] Over the period 2018–2020, 109 publicly traded enterprises with more than $100 billion in collective total assets were nationalized in this way.[26]

SOEs help stabilize public finance, including through allowing the government to use assets as collateral to issue debt or to sell shares to balance budgets.[27] According to academic Wendy Leutert, China's SOEs, "...contribute to central and local governments revenues through dividends and taxes, support urban employment, keep key input prices low, channel capital towards targeted industries and technologies, support sub-national redistribution to poorer interior and western provinces, and aid the state's response to natural disasters, financial crises and social instability."[28]

History of SOEs

Following the CCP victory in the Chinese Civil War, one of the party's early steps was to nationalize enterprises that the defeated Nationalists had controlled.[29]

During the Third Front campaign to develop heavy industry in China's interior regions, almost 400 state-owned enterprises were re-located from coastal cities to secret sites in the Chinese interior where they would be more protected in event of foreign invasion.[30]

In 1984, the State Council issued a directive to expand the autonomy of SOEs.[31] SOEs were also allowed to sell surplus goods on the market once they had met their quotas.[31]

With the goal of boosting innovation and efficiency, more than half of China's largest SOEs had established technical development centers by 1993.[17] The same year, the CCP issued its "Decision on Issues Related to the Establishment of a Socialist Market Economy System."[32] In the wave of reform thereafter, one goal was to separate SOE management from government and to empower a select group of SOEs with special property rights and autonomy.[32]

Consistent with President Jiang Zemin and Premier Zhu Rongji's strategy of grasping the large, letting go of the small, major SOE reform occurred in 1997,[32] which represented a change from the previously incremental reform efforts.[33] The state was encouraged to preserve large SOEs and to allow weaker ones to be "let go" through closing or consolidating.[34] Other major policies that were part of the 1997 reforms included management and employee buyouts and the inclusion of foreign strategic partners.[33]

The general trend since 2000 has been for SOEs to increase in importance consistent with a broader resurgence of state activity in the market.[35] SOE mergers have been routine since 2000.[9] Beginning in 2003 with Hu Jintao's administration, the Chinese government increasingly funded SOE consolidation, supplying massive subsidies and favoring SOEs from a regulatory standpoint.[36] These efforts helped SOEs to crowd out foreign and domestic private sector competitors.[36]

As part of China's Great Western Development program, China's five large state-owned hydropower companies planned, underwrote, and built the majority of dams on the river and its tributaries.[37]

SOEs were major beneficiaries of China's stimulus program following the 2008 global financial crisis, which began a period where the private sector withdrew and the state-owned sector expanded.[38]

Under Xi Jinping

The pace of SOE mergers has increased under Xi.[9] The goals of China's current SOE mergers include an effort to create larger and more competitive national champions with a bigger global market share by reducing price competition among SOEs abroad and increasing vertical integration.[9]

Overall, China's focus on SOEs during the Xi era have demonstrated a commitment to using SOEs to serve non-market objectives and increasing CCP control of SOEs[39] while taking some limited steps towards market liberalization, such as increasing mixed (state and private) ownership of SOEs.[40] Along with increased mergers, promotion of mixed ownership, and management of state capital have continued; results have been mixed.[40] Transitioning solely state-owned enterprises to a mixed ownership was announced in 2013 at the 18th Central Committee of the Chinese Communist Party and re-affirmed by the 19th Party Congress.[41]

According to Xi, "[T]he dominant role of state ownership cannot be changed, and the leading role of the state-economy cannot be changed."[36] In Xi Jinping Thought, the historical importance of state-owned enterprises is highlighted:[36]

[W]ithout the important material foundation that state-owned enterprises have laid for China's development over a long period of time, without the major innovations and key core technologies achieved by state-owned enterprises, and without state-owned enterprises' long-term commitment to a large number of social responsibilities, there would be no economic independence and national security for China, no continuous improvement in people's lives, and no socialist China standing tall in the East of the world.

Xi Jinping Thought also emphasizes the role of SOEs as part of the dominant position of state ownership necessary for common prosperity.[42]

In 2023, multiple state-owned enterprises, including Shanghai Municipal Investment Group, established internal People's Armed Forces Departments run by the People's Liberation Army.[43][44][45] They are expected "to work together with grassroots organizations to collect intelligence and information, dissolve and/or eliminate security concerns at the budding stage," according to the People's Liberation Army Daily.[44]

State Council (Central Government)

China Investment Corporation

SASAC of the State Council

As of 2022, SASAC oversees 97 centrally owned companies.[46] Companies directly supervised by SASAC have been reduced and consolidated through mergers according to the state-owned enterprise restructuring plan with the number of SASAC companies down from over 150 in 2008.[47]

Ministry of Finance

Ministry of Education

Regional Governments

Governments below the national level operate portfolios of SOEs which operate both domestically and abroad.[46]

Anhui Province

Beijing Municipality

Chongqing Municipality

Gansu Province

Guangdong Province

Shenzhen City

Zhuhai City

Guangxi Zhuang Autonomous Region

Guizhou Province

Hebei Province

Heilongjiang Province

Hubei Province

Wuhan City

Liaoning Province

Shanghai Municipality

Shandong Province

Linfen City

Yantai City

As of 2019

Shanxi Province

Tianjin Municipality

Xinjiang Uyghur Autonomous Region

Zhejiang Province

Ningbo City

Hong Kong S.A.R.

See also

Further reading

References

  1. ^ Drinhausen, Katja; Legarda, Helena (15 September 2022). ""Comprehensive National Security" unleashed: How Xi's approach shapes China's policies at home and abroad". Mercator Institute for China Studies. Archived from the original on 8 February 2023. Retrieved 15 February 2023.
  2. ^ Wang, Orange; Xin, Zhou (January 8, 2020). "China cements Communist Party's role at top of its SOEs, should 'execute the will of the party'". South China Morning Post. Archived from the original on January 8, 2020. Retrieved January 8, 2020.
  3. ^ "《中国华融党委书记、董事长赖小民赴广东分公司调研 强调全系统要总结、学习、推广"广东经验"助推中国华融转型发展》". Archived from the original on 2020-08-27. Retrieved 2020-08-26.
  4. ^ Jin, Xiankun; Xu, Liping; Xin, Yu; Adhikari, Ajay (2022). "Political governance in China's state-owned enterprises". China Journal of Accounting Research. 15 (2): 100236. doi:10.1016/j.cjar.2022.100236. S2CID 248617625.
  5. ^ Marquis & Qiao 2022, p. 14.
  6. ^ Jin 2023, p. 84.
  7. ^ Jin 2023, p. 84-85.
  8. ^ Li 2024, p. 117-118.
  9. ^ a b c d Pieke & Hofman 2022, p. 140.
  10. ^ Jin 2023, p. 95.
  11. ^ Wei, Lingling (2020-12-10). "China's Xi Ramps Up Control of Private Sector. 'We Have No Choice but to Follow the Party.'". The Wall Street Journal. ISSN 0099-9660. Archived from the original on 2022-08-21. Retrieved 2022-08-22.
  12. ^ Tjan, Sie Tek (17 October 2020). "China State Firms' Assets grow even as the Government presses for lighter debt". Caixin. Archived from the original on 7 January 2022. Retrieved 19 October 2020.
  13. ^ Hissey, Ian (17 December 2019). "Investing in Chinese State-Owned Enterprises". insight.factset.com. Archived from the original on 18 April 2021. Retrieved 15 March 2021.
  14. ^ Tjan, Sie Tek (21 May 2020). "How reform has made China's state-owned enterprises stronger". www.weforum.org. Archived from the original on 11 October 2020. Retrieved 19 October 2020.
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  17. ^ a b Lewis 2023, p. 24.
  18. ^ Lewis 2023, p. 40.
  19. ^ Lewis 2023, p. 41.
  20. ^ Lewis 2023, p. 217.
  21. ^ Shahab Uddin, Shanjida (2023). "Bangladesh and Belt and Road Initiative: Strategic Rationale". China and Eurasian Powers in a Multipolar World Order 2.0: Security, Diplomacy, Economy and Cyberspace. Mher Sahakyan. New York: Routledge. p. 132. ISBN 978-1-003-35258-7. OCLC 1353290533.
  22. ^ Shinn & Eisenman 2023, p. 272.
  23. ^ a b Li 2024, p. 113.
  24. ^ Marquis & Qiao 2022, p. 217-218.
  25. ^ Marquis & Qiao 2022, p. 21.
  26. ^ a b Marquis & Qiao 2022, p. 218.
  27. ^ Li 2024, p. 116.
  28. ^ Pieke & Hofman 2022, p. 146.
  29. ^ Liu 2023a, p. 36.
  30. ^ Meyskens 2020, p. 3.
  31. ^ a b Ang 2016, p. 81.
  32. ^ a b c Roach 2022, p. 215.
  33. ^ a b Heilmann 2018, p. 96.
  34. ^ Roach 2022, p. 215-216.
  35. ^ Hu 2023, p. 129.
  36. ^ a b c d Marquis & Qiao 2022, p. 217.
  37. ^ Harrell 2023, p. 220.
  38. ^ Marquis & Qiao 2022, p. 216.
  39. ^ Pieke & Hofman 2022, p. 138.
  40. ^ a b Pieke & Hofman 2022, p. 141.
  41. ^ Li 2024, p. 120.
  42. ^ Marquis & Qiao 2022, p. 223.
  43. ^ "Big Chinese state-owned enterprises setting up army-linked militias". Radio Free Asia. October 3, 2023. Archived from the original on 2023-10-06. Retrieved 2023-10-07.
  44. ^ a b Liu, Natalie (2023-11-07). "Why is China Highlighting Militias in State Owned Enterprises?". Voice of America. Retrieved 2023-11-09. According to Chinese media, units have been established this year in at least 23 SOEs nationwide, nine of them in Wuhan.
  45. ^ He, Laura (2024-02-21). "Major companies in China are setting up their own volunteer armies". CNN. Retrieved 2024-02-22.
  46. ^ a b Pieke & Hofman 2022, p. 137.
  47. ^ "China gives state firms $8 bln to combat slowdown". Reuters. November 28, 2008. Archived from the original on October 15, 2020. Retrieved July 1, 2017.
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  49. ^ "关于方正东亚信托有限责任公司调整股权结构的批复" (in Chinese). CBRC. 4 November 2016. Archived from the original on 9 January 2017. Retrieved 9 January 2017.